Risk Lurks in Subprime Auto ABS, Still No Bubble, Experts Say | Auto Finance News | Auto Finance News

Risk Lurks in Subprime Auto ABS, Still No Bubble, Experts Say

LAS VEGASBubble1 — For investors looking at subprime auto securitizations, stick with the proven companies, advised Theresa O’Neil, managing director at Bank of America Merrill Lynch.

“Stay up market, stay with people that have lived through a cycle,” she said during a panel at SFIG 2017 yesterday. “And I would argue right now that we’re all in a cycle, one that’s been induced by underwriting standards.”

While the risks in subprime auto are more “alpha” than in other sectors, Mary Kane, head of securitized products at Citi Global Markets Inc. said, there isn’t “any kind of credit bubble,” lurking in the sector.

It’s more likely that the industry will start to see consolidation among the “smaller players,” said John Mcelravey, managing director and head of consumer ABS research at Wells Fargo Securities, who also sat on the panel.

“This is a sector that’s been around for a fairly long period of time, so it definitely has the benefit of being through a couple credit cycles,” Mcelravey said. “Typically, you get these periods of expansion and consolidation, and we’re probably in the late stages of expansion at this point, so where’s the consolidation going to come from?”

In the past, the consolidation has come from large lenders and banks that have bought smaller platforms, Mcelravey said.

“In this cycle, maybe some of the smaller platforms will be consolidated to create a little more of an economy of scale with some of the bigger lenders,” he added. “But, I think that is just something to be watching for, I don’t think it’s an imminent danger.”

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